Russia's Credit Outlook Raised by S&P as Recession Nears End

Published: 16 September 2016
By Anna Andrianova

The outlook on Russia's junk credit rating was raised by S&P Global Ratings with the end in sight for the nation's longest recession in two decades.

S&P lifted the outlook to stable from negative, maintaining its foreign-currency rating of BB+, one step short of investment grade and on par with Bulgaria and Indonesia. Moody's Investors Service also has Russia at that level, while Fitch Ratings has the country at its lowest investment rating.

Having been slammed by plunging oil prices, the world's largest energy exporter is eyeing the end of an economic contraction that began at the start of 2015. While gross domestic product will probably shrink 0.2 percent this year, it will advance 0.8 percent in 2017, the Economy Ministry predicts. Even so, the government is running its widest budget deficit since 2010 and recession-induced spending is draining billions of dollars of fiscal buffers.

"We expect a return to positive real GDP growth in 2017-2019 averaging 1.6 percent," S&P said Friday in a statement. "We also expect that, despite fiscal pressures, Russia will maintain a comparatively low net general government debt burden in 2016-2019 and that the country will continue to maintain its strong net external asset position."

Losses Pared

Having lost 20 percent against the dollar in 2015 as oil prices tumbled, the ruble has gained 13 percent this year, the second-best performance behind Brazil's real among 24 emerging-market peers tracked by Bloomberg. The currency pared losses after S&P's announcement, leaving it 0.3 percent weaker at 64.98 per dollar at 7 p.m. in Moscow.

S&P's move was the first positive action by credit assessors since 2010 and shows Russia's economy has adapted to new conditions, Finance Minister Anton Siluanov told reporters in Moscow. He predicted an eventual return to investment grade as the government strengthens public finances.

While fiscal pressures will remain, S&P forecasts Russia's budget shortfall to average about 3.3% of GDP in 2016-2019, "falling steadily" on government consolidation plans from 4.1% this year. The ratings company assumes an average Brent oil price of $40 a barrel in 2016, rising to $45 next year and $50 in 2018, improving the oil industry's prospects. It called Russia's "modest" overall government debt position a rating strength.

Budget, Debt

"The stable outlook reflects our expectation that the Russian economy and policy making will continue to adjust to the relatively low oil price environment while keeping its external and fiscal metrics in check," S&P said in its statement.

Inflation, which has taken precedence over the shrinking economy for the central bank, will remain elevated, according to S&P. Consumer prices will grow 7 percent this year before averaging about 5 percent in 2017-2019, it said. That compares with an official target of 4 percent for next year.

The central bank Friday cut borrowing costs after a three-month pause, though said its benchmark interest rate will probably remain on hold through year-end to keep a lid on price growth.

Source: Bloomberg